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Expectations of a Second Wave: SaaS Companies in Covid Times

Published June 2020


Amid the loosening of social restrictions and widespread protests across the US, there has been an uptick in Covid-19 cases in many states. There are concerns that this could be a precursor to the “second wave” of coronavirus later this winter, when it coincides with the typical flu season.

Expectations of a second wave would push for the continued practice of Work-from-Home (WFH) policy in many workplaces, boosting Software-as-a-Service (SaaS) companies and other mission-critical tech-enabled firms and is expected to be reflect in their market valuations at least through the rest of the year.

Fears of a Second Wave

Since cases in China began to taper off in March, there has been much talk about a possible second wave in the country. As the outbreak escalated in Europe and the US, there were also increasing concerns of a second, larger wave later. Should governments fail to prepare adequately, this second wave could prove more devastating than the original wave.

To understand the idea of second waves, it would be remiss to ignore flu pandemics of the past. In particular, there were records of second waves in the Spanish Flu of 1918 and the flu pandemics in 1957 and 1968. When compared to the original waves, these were more severe and deadlier.

There are some pertinent points in how these second waves develop. The second wave of the Spanish Flu was dominated by a mutated flu strain, exacerbated by WWI soldiers traversing across Europe and returning to the US. [2] As for the pandemics in 1957 and 1968, there was no social distancing mandated as part of public health policy, likely contributing to a second wave. [3] [4] [5]

With stay-at-home orders being lifted across the US and the continued flouting of social distancing recommendations, the prevailing conditions seem to portend a second Covid-19 wave later this year in a similar fashion.

Working from Home

The rise of SaaS companies such as industry pioneer Salesforce and e-commerce platform Shopify has made it increasingly possible for many companies to operate through the internet. Since these employees can now work from home effectively, managers are adapting to the pandemic conditions by giving their employees permission to do so. This contrasts significantly with past pandemics.

Another difference is that in this internet age, misinformation and fear spreads extremely quickly through social media. In addition, when people find out that their friends are panic-buying through online posts, they may take their cue from the community and are more likely to follow suit. [6]

In reality, the anxiety that we experience will be partly based on the reopening of the economy and disregard for social distancing, partly based on exaggeration through modern communication channels.

Social media may amplify our fears and anxieties, but we should note that this will shape how we perceive the situation and thus inform our decisions at the workplace. As vaccines are not likely to be widely accessible by this year, the WFH policy will remain a cornerstone of workplace life and drive demand in SaaS products.

One major beneficiary will be HyperScience, a document processing automation platform. The company reported a 30% MoM increase in usage in March, underscoring the growing importance of document management and digital signature when physical documents are not optimal for WFH situations. [9]

Cloud is the Cushion in the Covid Crisis

Based on our latest 2Q Quarterly Research at Evolve Capital Partners, we noted the strong resilience of public companies focusing on “Enterprise Software / Data & Analytics” as reflected in their stock returns. As of May 1, 2020, the stock value of companies in this sector grew by 4.7% in 2020, while other FinTech sectors recorded negative growth. [7]

The growth in the above-mentioned sector is driven by cloud-based companies providing SaaS solutions. Once a firm adopts and gets used to a particular SaaS solution, it typically gets locked in and will generate long-term subscription fees for the SaaS provider. Workday, a provider of cloud-based human resources and financial reporting software, saw its subscription sales go up by 25.8% YoY in 1Q 2020 driven by its expanding customer base. [8]

As the US economy officially falls into a recession and with few positive signs of sustained economic recovery in the near-term, many clients of SaaS companies are expected to face even more difficult times.

While some would start to reprioritize their software spending, causing a possible dent in the short to mid-term earnings of SaaS companies (especially for those that are not considered mission-critical ones), the future prospects for these SaaS companies remain strong due to the ongoing transition towards remote working at a macro level.

Although Workday lowered its fiscal 2021 subscription sales estimate to account for the Covid-19 impact, only 4 of the 35 stock analysts following the company recommended a “sell.” About half of the 35 stock analysts surveyed recommended a “buy,” indicating their positive expectations for the company. [8]

Valuations of SaaS Companies

With that understanding, investors have been bidding up the valuations of public SaaS companies amid the global pandemic. In fact, as of May 15 these companies have recorded all-time valuation highs (20.4x based on weighted average forward revenue ie. EV/NTM revenue), according to Meritech Capital. [10]

TechCrunch suggests a “Hybrid Theory Of Covid-19 Era SaaS Valuations,” attributing the sky-high valuations to three parts: two parts greed (capital rotation into SaaS companies and an era of Zero Interest-Rate Policy) and one part common sense (based on a long-term digital transformation). [11] And as mentioned earlier, this common sense is propelled by social distancing concerns as the economy reopens, amplified by social media.


The specter is upon us: China is currently seeing a resurgence of new cases of community transmission linked to a wholesale food market, recording a new daily high since mid-April and sparking concerns of potential second wave. [12] As the situation continues to develop in China, we are once again reminded of the idea of the second wave in the US. The expectation of a second wave in the upcoming months is expected to keep driving up the valuations of SaaS companies, demonstrating the long-run market resiliency of these companies.


[1] https://www.history.com/news/spanish-flu-second-wave-resurgence

[2] https://reason.com/2020/03/31/how-will-coronavirus-pandemic-deaths-compare-to-the-1957-flu-pandemic/

[3] https://www.wsj.com/articles/forgotten-pandemic-offers-contrast-to-todays-coronavirus-lockdowns-11587720625

[4] https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)31201-0/fulltext

[5] https://time.com/5802802/social-media-coronavirus/

[6] https://www.evolve-capital.com/newsletter/publications/Evolve%20Q2%202020%20Newsletter.pdf, p26.

[7] Ibid., p14.

[8] https://marketrealist.com/2020/05/why-workday-stock-rose-7-weak-q1-results/

[9] Ibid.

[10] https://www.meritechcapital.com/blog/q1-saas-earnings-and-valuation-review               

[11] https://techcrunch.com/2020/05/22/what-the-hell-saas-valuations/

[12] https://www.newsweek.com/china-coronavirus-second-wave-risk-very-high-beijing-official-lockdown-1510832